The UAE announced that it will impose new taxes on large multinational companies in its latest amendments to the corporate tax law. Following the issuance of Federal Decree Law No. 60 of 2023, a domestic minimum top-up tax will be effective in the UAE for financial years starting on or after January 1, 2025.
This strategic step reflects the UAE’s commitment to implementing the Organization for Economic Co-operation and Development’s (OECD) Two-Pillar Solution, aimed at establishing a fair and transparent tax system aligned with global standards, stated the Ministry of Finance.
MNEs to pay 15 percent tax rate
The Pillar Two rules require large multinational enterprises (MNEs) to pay a minimum effective tax rate of 15 percent on profits in every country where they operate. The domestic minimum top-up tax will apply to multinational enterprises operating in the UAE with consolidated global revenues of €750 million ($792.59 million) or more in at least two out of the four financial years immediately preceding the financial year in which the domestic minimum top-up tax applies.
The UAE’s implementation of the domestic minimum top-up tax will closely align with the OECD’s GloBE Model Rules. They come a year after the UAE began rolling out a 9 percent business tax, with exemptions for the many free zones that support its economy.
Notably, Bahrain said in September that it would also introduce a domestic minimum top-up tax starting from January 1 next year on large multinationals.
R&D tax incentives
The UAE continues to enhance its business-friendly environment, reflecting its commitment to national strategic objectives such as strengthening economic competitiveness and improving ease of doing business. To promote sustainable growth, innovation, and investment, the UAE’s Ministry of Finance is currently considering the introduction of Corporate Tax Incentives under Federal Decree-Law No. 47 of 2022.
The UAE is considering the implementation of a Research and Development (R&D) Tax Incentive to encourage R&D activities, foster innovation and economic growth within the country. Based on feedback the ministry received during public consultations it conducted in April 2024, the proposed incentive is expected to take effect for tax periods starting on or after January 1, 2026.
The R&D tax incentive will be expenditure-based, offering a potential 30-50 percent tax credit, and will be refundable depending on the revenue and number of employees of the business in the UAE. The scope of qualifying R&D activities will align with the OECD’s Frascati Manual guidelines and will be required to be conducted within the UAE.
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Refundable tax credit
Another incentive the UAE is considering is a refundable tax credit for high-value employment activities. This incentive aims to encourage businesses to engage in activities that deliver significant economic benefits, stimulate innovation and enhance the UAE’s global competitiveness.
This incentive is proposed to take effect on January 1, 2025, and will be granted as a percentage of eligible salary costs for employees engaged in high-value employment activities. This includes C-suite executives and other senior personnel performing core business functions that add substantial value to the UAE economy. The final form and implementation of the above-mentioned proposed incentives are subject to legislative approvals.
